Spicers to start using finance companies
One of New Zealand’s largest financial planning firms, Spicers Wealth Management, has decided to start using investments from finance companies, but is only going to use two firms.
Sunday, January 23rd 2005, 10:08PM
The move is interesting as many in the financial planning community consider finance company offerings to be too risky for the returns promised.
Spicers says it has done extensive research on finance company offerings “to identify suitable investment opportunities for our clients.”
The research looks at the quality of the investments made by 27 finance companies, the size of those investments in relation to the total lending book, interest rates charged in relation to risk and the level of bad debts incurred.
The research also examines the degree of sector diversification of investments made by finance companies, the level and terms of related party loans, the time the finance company has been in business and governance structures.
On the other side of the ledger, levels of equity to debt are examined, along with the relationships with trustee companies who are charged with protecting the interests of debenture holders.
Two finance companies, UDC and Marac, have been selected as a result of this process.
Spicers says that it has negotiated “preferential terms” for its clients. Spicers adviser Jeff Matthews says research is vital for making the correct choices.
“The higher rates of interest on debentures and unsecured notes marketed by some finance houses have proved too tempting for many investors.
“Few investors realise that considerable research is required to determine if the high rates offered accurately reflect the risk profile of those finance companies,” Matthews says.
“We share the concerns of the Securities Commission over the quality of some of the products being marketed in terms of the risk investors actually face.”
“If the economy slows, as is widely expected over the coming year, the conservative lending policies of banks will see more sound propositions pushed towards finance companies. However, finance companies who make lower quality loans will be more at risk from a higher level of bad debts as the economy slows.”
Matthews says those finance companies that have a quality loan book and who operate in a prudent manner will remain very attractive for investors.
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